While there are many ways scammers or unscrupulous brokers and advisors can take advantage of investors, here are a few common red flags to watch out for:
First and foremost, if it sounds too good to be true it probably is. When it comes to investments, there are no guarantees. High returns and high risk go hand-in-hand. If your money is very safe (such as a bank account or CD) you will get a lower turn.
Watch out for hype or promises about a potential investment.
Per the SEC, common phrases to be leery of include: “incredible gains” or “breakout stock picks.” Your best bet is to compare promised-yields of potential investments with current returns of well-known stock indexes. If they don’t match up, a scam may be in the making.
Be careful if you’re being pushed into an investment. Pitches that stress “buy now,” “everybody is investing in it” or it’s a “once-in-a-lifetime offer”, or pressure to decide right now are often red flags. While investment opportunities can change quickly, an investor’s best friend includes time to research.
Feeling compelled to reciprocate? Just because an advisor or broker “wines and dines” you or appears overly generous or caring, doesn’t mean you must invest your money with him or her. Certainly, an excellent financial advisor will can have a friendly and generous attitude. However, that does not negate the necessity of checking out the qualifications of any advisor, firm, company or product, including individuals who appear trustworthy, or those who come highly recommended by friends.
Even if you’ve used the same advisor for many years, it’s often a good idea to check their current record against recent complaints, and to ensure that they are still up-to-date on their licensing and registration. If you can’t find out much about the advisor, company, product or service from independent sources, it may be a sign to move on.
Certainly, penny stocks or micro-cap stocks turn out to be great investments, but they can often be ripe for fraudulent broker activity and financial loss. (Visit our previous blog posts on micro-caps and pump and dump schemes for more information).
Also, don’t trust unsolicited tips, including messages received via email or text that appear to have been meant for someone else. These “wrong numbers” are anything but, and a common type of investment scam.
If you believe you have been a victim of securities or investment fraud, please contact our Michigan securities law firm today. We have helped countless individuals recover from investment losses. Call today for your free case evaluation.